Lkq Corporation · NASDAQ:LKQ
Lkq — Q3 2020 Earnings Presentation
63 slides from Lkq's earnings presentation, November 2020
Slide 1: Investor Presentation
Investor Presentation November 2020
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
Forward Looking Statements and Non-GAAP Financial Measures Statements and information in this presentation that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such A
Slide 3: Mission Statement
Mission Statement To be the leading global value-added distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost effective selection of part solutions while building strong partnerships with our employees and the communities in which we operate
Slide 4: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 4
Slide 5: Over 16 Years of Growth
Over 16 Years of Growth Wholesale Keystone/ Remanufactured Self Serve Europe-Sator Europe-Rhiag Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe-ECP Services Collision Wheels Specialty S
Slide 6: Overview of LKQ
Overview of LKQ Company Overview Financial Performance LKQ is a global distributor of vehicle products, including replacement parts, components and systems used in repair and maintenance of vehicles and specialty Revenue ($mm) products and accessories Founded in 1998 through a combination of who
Slide 7: Health & safety of our employees, customers and communities
One of our top priorities is the health & safety of our employees, customers and the communities in which we operate Exercised best efforts to follow the guidance provided by the CDC, WHO, Procured and provided PPE to our OSHA and other public health employees authorities and resources Implemented p
Slide 8: Performance During COVID-19 Reflects Resilience of Business Model
Performance During COVID-19 Reflects Resilience of Business Model and Clear Financial Priorities Revenue $ in M Adjusted Gross Margin1 in % SG&A $ in M -11.3% +60 BPS -13.4% $6,396 $5,674 38.5% 39.1% $1,790 $1,551 Q2-Q3 2019 Q2-Q3 2020 Q2-Q3 2019 Q2 -Q3 2020 Q2-Q3 2019 Q2-Q3 2020 Segment EBITDA1 in
Slide 9: North America - COVID-19 Disruption, Market Share, Cost Reductions
North America- COVID-19 created disruption but increased market share and expedited planned cost reductions Distribution & Wholesale North America Footprint Safety during COVID-19 Revenue and Gross Margin % Market ↓ 29% • Considered essential business throughout Revenue ↓ 23% • Created North America
Slide 10: Cost Structure Actions
Cost Structure Actions Opex quarterly run rate(1) Key cost reductions • In the third quarter brought back operating expenses as revenue activity improved, though costs remain at a lower level than pre-pandemic in Q1 owing to permanent Opex 10% cost reductions Opex 18% Revenue 16% Other Revenue 12% •
Slide 11: Liquidity as of September 30, 2020
Liquidity as of September 30, 2020 Credit Rating • Rated Ba2 / BB by Moody’s and S&P, respectively • Fixed Interest Rate Bonds: €1,500 million ($1,758 million) • Variable Interest Rate Bank Debt: $1,246 million ($935 million hedged to fixed rates) Debt Structure • Receivables Securitization Facility
Slide 12: Key Priorities
Key Priorities Profitable Growth Cash Flow Generation European Integration Talent Acquisition 12
Slide 13: Aligning Corporate Strategy and Financial Policy
Aligning Corporate Strategy and Financial Policy Consolidation Focus Operational Excellence (1998 – 2018) (2019 – Future) • Professionalize alternative collision part • Be the leading distributor for collision parts market in North America and develop scale in North America and mechanical parts in a
Slide 14: Recent Business Divestitures
Recent Business Divestitures PGW Glass Manufacturing Stahlgruber Non Core March 2017 Andrew Page Auto Parts Depots Telecommunications (11 Branches) Non Core, Low Margin Competition Authority Requirement May 2020 August 2018 Stahlgruber Czech Auto Parts Rationalize Recycled Aviation Parts Competition
Slide 15: Overview of Recent Talent Additions
Overview of Recent Talent Additions North America Europe Specialty Corporate • Vice President Self Service • CEO Euro Car Parts • Controller Specialty • CEO Stahlgruber Internal • CHRO LKQ Europe Hires • Controller LKQ Europe • CFO North America • CEO LKQ Europe • Global CIO • CFO LKQ Europe • Globa
Slide 16: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 16
Slide 17: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview Collision 5.6% 2.9% 3.0% 5.7% 0.9% (12.7%) Aftermarket automotive products North America $4,800 $5,183 $5,209 Automotive glass distribution $4,119 $4,445 $3,466 Recycled & Refurbish
Slide 18: LKQ North America wins with industry leading fill-rates
LKQ North America wins with industry leading fill-rates, strong value proposition and strategic partnerships High Fulfillment Rates Distribution & Wholesale North America Footprint Value Proposition • Highly fragmented space 2011 Chevrolet 2014 GMC Equinox 2017 Nissan Altima Sierra 1500 • Nationwide
Slide 19: Collision Products, a $17 Billion Industry in the US
Collision Products, a $17 Billion Industry in the US Insurance Companies (Indirect Customers) New OEM Manufacturers Repair Shop 61% Refurbished & Recycled OEM Optional OE 11% Aftermarket Products 21% 7% Alternative parts = 39% of parts costs 19 Source: CCC Information Services – Crash Course 2019.
Slide 20: Aging Vehicles and Increasing Repair Complexity Contribute to Growth
Aging Vehicles Coupled with Increasing Complexity and Cost of Repairs Contribute to Growth Opportunities United States Vehicles in Operation (between 3-10 years old) (in millions) 121 119 118 117 118 114 112 108 106 103 101 101 101 103 2015 2022 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020
Slide 21: LKQ Operates in a Growing and Economically Resilient Industry
LKQ Operates in a Growing and Economically Resilient Industry Stable Vehicle Miles Traveled Provide Consistent Demand for Aftermarket Auto Parts (in Trillions of Miles) 2001 Great Unique Recession CAGR Recession Lock- +1.3% Down Decrease +2% -2% 3.2 3.2 3.2 3.3 3.0 3.0 3.0 3.0 3.0 3.0 3.1 2.9 2.9 3.
Slide 22: Segment Overview: The Market Leader in Europe
Segment Overview: The Market Leader in Europe UK & ROI #1 Market Position in Top 6 Markets2 $5.8 B Netherlands, Belgium, and France Revenue 2019 Italy and Switzerland Germany and Austria Central and Eastern Europe Scandinavia Germany United Kingdom > 900,000 Unique SKUs ~ 1,000 Italy Czech Republic
Slide 23: Growing European Market with Aging Fleet
Growing European Market with Aging Fleet Europe Total Vehicles in Operation Expected Organic Growth for LKQ Europe 2020 — 2025 CAGR (in millions) 358 364 370 376 334 340 346 352 310 315 321 327 299 304 2.5% 1.0% 2014 2022 2009 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2021 LKQ Europe Footpri
Slide 24: Total Vehicle Kilometers Traveled in Europe
Total Vehicle Kilometers Traveled in Europe Exhibit Similar Patterns as in the US Historical Vehicle Kilometers Traveled in Trillions of Km CAGR +0.9% 1.65 1.65 1.69 1.68 1.55 1.55 1.57 1.59 1.53 1.53 UK Italy Germany 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Stable vehicle kilometers travel
Slide 25: Q3 2020 Revenue
Q3 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Foreign Organic Divestiture Exchange Total(1) North America (11.3)% (0.7)% (0.1)% (12.1)% Europe (0.7)% (1.5)% 4.5% 2.3% Specialty 1.1% 0.3% (0.1)% 1.4% Parts and Services (4.5)% (1.0)% 2.1% (3.4)% Other Revenue (0.1)%
Slide 26: North America - Q3 2020 Results
North America- Q3 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $1,164 $1,302 (10.6)% Gross Margin $534 $576 (7.2)% 45.9% 44.2% Adjusted Gross Margin* $535 $576 (7.1)% 46.0% 44.3% Operating Expenses $332 $417 20.4% 28.5% 32.0% Other Income, net
Slide 27: Europe - Q3 2020 Results
Europe- Q3 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $1,484 $1,451 2.2% Gross Margin $550 $513 7.3% 37.1% 35.3% Adjusted Gross Margin* $550 $530 3.8% 37.1% 36.5% Operating Expenses $415 $409 (1.6)% 28.0% 28.2% Other (Expense) Income, net $(
Slide 28: Specialty - Q3 2020 Results
Specialty- Q3 2020 Results Gross Margin Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $400 $395 1.3% Gross Margin $114 $111 2.4% 28.5% 28.2% Operating Expenses $67 $67 (0.0)% 16.7% 16.9% Segment EBITDA(1) $48 $45 6.3% 12.1% 11.5% (1) Segment EBITDA for each respective s
Slide 29: 2020 YTD Capital Allocation
2020 YTD Capital Allocation $ in millions $421 • YTD Operating cash flows: ▪ Operating cash flows of $1,135 million represent a $169 million (or 18%) year over year increase owing to cash inflows from inventory and net receivables, partially offset by cash outflows from accounts payable and income t
Slide 30: Free Cash Flow
Free Cash Flow* $ in millions $1,200 $1,135 120% $1,064 $1,025 108% 108% $1,000 100% $798 $800 $715 80% 66% 66% $600 $571 $544 $523 60% $465 42% 42% $400 $374 45% $388 45% 39% $347 40% 39% 31% 31% $200 20% $0 0% 2015 2016 2017 2018 2019 2020 Q3 YTD Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBI
Slide 31: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,072 $3,491 $3,478 $3,133 2.6x 2.0x Effective borrowing rate for Q3 2020 was 3.1% (2) 31 (1) Total capacity includes our term loans and revolving credit facilities (2) Including our interest rate swaps, approximately 90% of o
Slide 32: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 32
Slide 33: LKQ's Plan to Drive Shareholder Value
LKQ’s Plan to Drive Shareholder Value ✓ Expansion into new markets mostly complete ✓ Euro Car Parts (United Kingdom & ROI) Enhanced European ✓ Sator (Benelux & France) simplification through “1 LKQ Europe” ✓ Rhiag (Italy & 9 other European countries) ✓ Stahlgruber (Germany & Eastern Europe) ✓ Plan t
Slide 34: 1 LKQ Europe Project
1 LKQ Europe Project 22 Improved Customer … In the Hands of Maintain Strong Different Experience…. Local Managers Entrepreneurial Culture Countries Multiple ERP, financial, E-mail, Phone Transformation systems… Common ERP Platform Rationalized Product Portfolio … And Fragmented Procurement and LKQ E
Slide 35: Confident in Achieving Our Committed Performance
Confident in Achieving Our Committed Performance 0.6% -0.3% 0.3% 11.1% 2.2% 0.2% 0.1% -0.5% 8.3% 1.9% September 2019 LKQE Segment 7.8% 9.5% EBITDA Margin Bridge1 Forecasted Key Initiatives Asset Rationalization Organic Growth Incremental Expected 2021 Segment 2019 Segment Transformation Costs EBITDA
Slide 36: EBITDA Margin 2019-2021
EBITDA Margin 2019-2021 LKQE Segment EBITDA Margin % 2019 – 2021 10.3% 8.5% 7.8% 6.5% 9.2% 8.0% 2019A H1 2020A H2 2020F 2021F Potential Range Expected Segment EBITDA % Same Period Sales as % of 2019 Sales 2019 Sales 36
Slide 37: Multiple Levers to Drive North American Results
Multiple Lever to Drive North American Results Key Initiatives A Great Stable of Brands Favorable collision tailwinds Collision & Mechanical Organic Expansion of product offerings Revenue Growth Monitoring opportunity of ADAS and EV Aftermarket Salvage Glass Paint (PBE) Further optimizing af
Slide 38: Leading Brands and Multiple Levers to Drive Strong Specialty Growth
Leading Brands and Multiple Levers to Drive Strong Specialty Growth Key Initiatives A Great Stable of Brands New product lines through the same distribution (target $25M/year) New Product Lines New products within existing lines New services New customers (Jobbers, Dealers, Retailers, Instal
Slide 39: Financial Policy to Enhance Shareholder Value
Financial Policy to Enhance Shareholder Value Target organic growth greater than market comps Focus on Free Achieve 1 LKQ Europe program and NA margin expansion Cash Flow Generation Convert high levels of EBITDA to Free Cash Flow with a focus on trade working capital efficiencies Targeting i
Slide 40: Sustainable Business Practices
Sustainable Business Practices Environmental Q3 2020 Results(1) Social Governance • Our North American recycling 209,000 • We have shared with our • Experienced and diverse Board operations harvest vehicle Number of vehicles procured employees some of the of Directors components for reuse in the ben
Slide 41: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 41
Slide 42: Corporate Governance Highlights
Corporate Governance Highlights Independent LKQ is governed by 12-member board of directors, 10 of whom are independent directors under NASDAQ Leadership & guidelines Oversight Separate Chairman / CEO roles Ongoing process to refresh and strengthen board composition with shareholder input; 6 n
Slide 43: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Capital Allocation/ Finance/ Government Human Capital Executive Automotive Digital Corporate Accounting/Audi Relations/ Management/Com Corporate Europe / Other Supply Chain/ Risk Assessment Investor Director Leadership I
Slide 44: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Years on Photo Name Age Relevant Experience Key Skills Independent Board Joseph Holsten 21 68 Former CEO of LKQ Unparalleled knowledge of LKQ business and industry Dominick Zarcone 3 62 President and CEO Extensive finance expe
Slide 45: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 45
Slide 46: LKQ Performance-Based Compensation Practices
LKQ Performance-Based Compensation Practices The Compensation Committee of LKQ’s board carefully considers the most effective ways to motivate and incentivize management to accomplish specific strategic goals Objective, tailored metrics with challenging performance targets are chosen annually to
Slide 47: Management and Board Executing on Strategy Delivering Shareholder Value
LKQ’s Management and Board are Executing on a Strategy That is Delivering Shareholder Value • COVID-19 Pandemic Impact on Operations ◦ Revenue recovery continued in Q3 as mobility restrictions and resulting impacts lessened sequentially, but improvement leveled off by quarter end ◦ Revenue impact th
Slide 48: What LKQ Offers Investors
What LKQ Offers Investors ✓ Market leading position in almost everything we do ✓ The broadest product line amongst automotive parts distributors ‒ Mechanical ‒ Collision ‒ Accessories ✓ The broadest geographic coverage amongst automotive parts distributors ‒ United States ‒ Canada ‒ Europe (22 count
Slide 49: LKQ's Business Model Supports Sustainable Growth in all Macro Environments
LKQ’s Business Model Supports Sustainable Growth in all Macro Environments Select North American Brands Select European Brands Non-Discretionary Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Operating Leverage Adjacent and Synergy Markets Opportunities Su
Slide 50: Appendix - Non-GAAP Financial Measures
Appendix- Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Following are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP. 50
Slide 51: Appendix 1 - Constant Currency Reconciliation
Appendix 1 - Constant Currency Reconciliation • The following unaudited table reconciles revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020 Consolidated Europe Consolidated Europe Pa
Slide 52: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 – Revenue and Segment EBITDA by segment Three Months Ended Nine Months Ended September 30(1) September 30(1) % of % of % of % of (in millions) 2020 revenue 2019 revenue 2020 revenue 2019 revenue Revenue North America $1,164 $1,302 $3,466 $3,926 Europe 1,484 1,451 4,059 4,413 Specialty 400
Slide 53: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 – Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended September 30(1) Nine Months Ended September 30(1) (in millions) 2020 2019 2020 2019 Net income $194 $153 $459 $404 Subtract: Net income (loss) attributable to continuing noncontrolling interest 0 (0) 1 2 Net in
Slide 54: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 – Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) September 30, December 31, (in millions) March 31, 2018 June 30, 2018 2018 2018 Net income $153 $158 $134 $38 Subtract: Net (loss) income attributable to noncontrolling interest (0) 1 0 2 Net income attribut
Slide 55: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 – Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) September 30, December 31, (in millions) March 31, 2019 June 30, 2019 2019 2019 Net income $99 $152 $153 $141 Subtract: Net income attributable to continuing noncontrolling interest 1 1 (0) 0 Net income attr
Slide 56: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 – Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) (in millions) March 31, 2020 June 30, 2020 Net income $146 $119 Subtract: Net income (loss) attributable to continuing noncontrolling interest 1 (0) Net income attributable to discontinued noncontrolling int
Slide 57: Appendix 3 - EBITDA and Segment EBITDA Reconciliation
Appendix 3 – EBITDA and Segment EBITDA Reconciliation We have presented EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our operating performance and the value of our business. We calculate EBITDA as ne
Slide 58: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
Appendix 4 – Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Three Months Ended Nine Months Ended September 30(1) September 30(1) (in millions, except per share data) 2020 2019 2020 2019 Net income $194 $153 $459 $404 Subtract: Net income (loss
Slide 59: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
Appendix 4 – Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we believe these measures are useful for e
Slide 60: Appendix 5 - Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 5 – Reconciliation of Net Cash Provided by Operation Activities to Free Cash Flow Three Months Ended Nine Months Ended September 30(1) September 30(1) (in millions) 2020 2019 2020 2019 Net cash provided by operating activities $222 $327 $1,135 $965 Less: purchases of property, plant and equ
Slide 61: Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 – Reconciliation of Gross Margin to Adjusted Gross Margin Consolidated Adjusted Gross Margin Three Months Ended(1) Nine Months Ended(1) September 30, September 30, September 30, September 30, (in millions) 2020 2019 2020 2019 Gross margin $1,199 $1,200 $3,423 $3,656 Add: Restructuring exp
Slide 62: Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 – Reconciliation of Gross Margin to Adjusted Gross Margin North America Adjusted Gross Margin Three Months Ended(1) (in millions) June 30, 2020 Gross margin $454 Add: Restructuring expenses - cost of goods sold 3 Adjusted gross margin $457 Gross margin % 44.9% Adjusted gross margin % 45.2
Slide 63: Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 – Reconciliation of Gross Margin to Adjusted Gross Margin We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business